21st Jul 2009 07:00
21 July 2009
Dragon Oil plc
(the "Company" or together with its subsidiaries "Dragon Oil" or the "Group")
Trading Statement
Dragon Oil plc (Ticker: DGO), an international oil and gas exploration and production company, today issues the following trading statement, which includes an operational update and financial highlights for the six-month period ended 30 June 2009. All information referred to in this update is unaudited and subject to further review. Dragon Oil expects to publish its 2009 Interim financial results on 17 August 2009.
Key highlights
Operational update
11% increase in average daily production rate at 42,808 barrels of oil per day ("bopd") in 1H 2009 compared to 38,482 bopd in 1H 2008;
Entitlement barrels in 1H 2009 at approximately 65% of the gross field production compared to 54% in 1H 2008;
Two development wells came on stream in May 2009 at combined rates of 3,554 bopd and 2,628 bopd;
Dragon Oil's own Rig 40 and the Iran Khazar rig expected to complete two wells by the end of July 2009;
Contract for the Iran Khazar rig extended for another two years;
Contract for part-time use of Astra jack-up rig secured to drill two wells commencing in Q4 2009.
Financial update
Capital expenditure on infrastructure and drilling amounted to US$155 million for 1H 2009, similar to the level spent during the comparable period in 2008 (1H 2008: US$154 million);
The Group's cash balance at 30 June 2009 was US$875 million (31 December 2008: US$876 million); unleveraged position maintained.
Dr Abdul Jaleel Al Khalifa, CEO, commented:
"The first six months of 2009 were eventful for Dragon Oil both on the operational and corporate fronts. Good progress was made with securing rigs to support our long-term drilling programme, but due to changes in the 2009 drilling programme and certain operational issues the average production for 1H 2009 was below our expectations. However, we remain committed to our drilling programme and expect to achieve up to 15% growth in annual production on average over the years 2009-11. Despite the volatility in oil prices and challenges in the broader economy, we maintained a strong financial position with a cash balance of US$875 million."
OPERATIONAL UPDATE
Production
The average daily production rate on working interest basis was 42,808 bopd for 1H 2009. This represents an 11% increase over the comparable period in 2008 when the average daily production rate reached 38,482 bopd. The average daily production for 1H 2009 was down from 43,787 bopd reported for Q1 2009 due to changes in the drilling programme with the first two new wells coming on stream only at the end of May 2009 combined with lost production from Dzheitune (Lam) A/127 well. The production from this well has been significantly reduced due to operational issues, which are expected to be resolved through a workover scheduled to take place later this year.
The entitlement production for 1H 2009 was approximately 65% of the gross production compared to 54% for the comparable period in 2008. The entitlement barrels are dependant amongst other factors on operating and development expenditure in the period and the realised crude oil prices. In 1H 2009, lower oil prices than in the comparable period in 2008 resulted in higher entitlement barrels.
Marketing
Dragon Oil sold 4.9 million barrels of crude oil in 1H 2009 (1H 2008: 3.5 million barrels), this is 40% higher than the volume sold during the corresponding period last year. In 1H 2009, approximately 90% (1H 2008: 80%) of crude oil was exported via Neka, Iran. A new crude oil marketing contract via Baku, Azerbaijan was put in place in early 2009 and the sales of crude oil via this route resumed in March 2009.
Dragon Oil continues to assess additional routes to market, including Makhachkala in Russia and the BP operated BTC (Baku-Tibilisi-Ceyhan) pipeline.
The Group was in an underlift position of approximately 0.5 million (31 December 2008: 0.6 million) barrels of crude oil at the end of 1H 2009.
Drilling
Two dual-completion development wells were completed and came on stream in May 2009: Dzheitune (Lam) 13/133A completed by Rig 40 and Dzheitune (Lam) 28/134 completed by the Iran Khazar rig. The wells were drilled to depths of 2,975 and 3,280 metres, respectively. Initial testing of Dzheitune (Lam) 13/133A and Dzheitune (Lam) 28/134 resulted in the combined production rates of 2,628 bopd and 3,554 bopd, respectively.
Dzheitune (Lam) 13/133A was initially targeted at the Southern flank of the field beyond the fault line and was found to be wet. The well was sidetracked to reach the planned depth and was completed in May 2009.
The Iran Khazar rig underwent planned maintenance at the beginning of the year and was then mobilised to Dzheitune (Lam) 28 platform where it commenced drilling at the end of March 2009 and completed its first well for this year, Dzheitune (Lam) 28/134, in May 2009.
Rig 40, the Group's platform-based drilling rig, is currently completing the Dzheitune (Lam) 13/135 well; we expect to commence production from this well by the end of July 2009.
On 9 April 2009, Dragon Oil announced that it had reached an agreement to extend the contract for the Iran Khazar rig for another two years from May 2009. The Iran Khazar rig is currently drilling Dzheitune (Lam) 13/136 well, which is also scheduled to come on stream by the end of July 2009.
On 18 June 2009, we announced that we had signed a contract to hire the Astra jack-up rig for a period of six months commencing in November 2009; we expect to drill two wells during the term of the contract.
We expect to complete eight wells before the end of the year.
During 1H 2009, our workover programme included a rigless workover operation conducted on Dzheitune (Lam) 13/96 well that resulted in incremental production of 783 bopd.
FINANCIAL UPDATE
Cash and cash equivalents
The cash and cash equivalents and term deposits as at 30 June 2009 was US$875 million (31 December 2008: US$876 million), including US$104 million (31 December 2008: US$92 million) set aside for abandonment and decommissioning activities.
Capital expenditure
Capital expenditure for 1H 2009 was approximately US$155 million (1H 2008: US$154 million). Of the total capital expenditure, approximately 53% (1H 2008: 42%) was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during the first six months of the year included construction of Dzheitune (Lam) B platform, the 30" trunkline and Phase 2 expansion of the Central Processing Facility, and upgrade of Dzheitune (Lam) 63 platform and Phase 2 of the Aladja Jetty. Dzheitune (Lam) B platform is being installed and will be ready for drilling later this year.
Capital expenditure for 2009 is expected to be weighted towards the second half of the year, due to delays in construction of the 30" 40km trunkline and the Phase 2 expansion of the Central Processing Facility.
Limited availability of contractors in the Caspian Sea region remains one of the key risks to Dragon Oil's operations. We are actively addressing this risk by initiating contact with new contractors with focus on rigorous due diligence process in light of a number of infrastructure projects planned over the next three to five years.
Realised prices
The average realised crude oil price during 1H 2009 was approximately US$50/bbl (1H 2008: US$108/bbl), which was 54% lower compared to the corresponding period last year The Group's realised crude oil prices achieved a discount of 2% (1H 2008: 1.4%) to Brent during the first six months of the year.
MATERIAL EVENTS
Preliminary approach
On 4 June 2009, we announced that the Company had been approached by Emirates National Oil Company Limited (ENOC) L.L.C. ("ENOC") in relation to a possible offer for the entire issued and to be issued share capital of the Company it does not currently own (the "Approach"). The Company formed an Independent Committee of the Board to evaluate an offer should one be forthcoming. The Approach is of a preliminary nature and there can be no certainty that any offer will be made or as to the terms of any such offer. A further announcement will be made as appropriate.
Corporate restructuring
On 27 March 2009, the Board of Dragon Oil plc announced the proposed restructuring of the Company by means of a scheme of arrangement by putting in place a Bermuda-incorporated company as the new ultimate holding company of the Group. Following the restructuring, the Company was planning to apply for a primary listing on the London Stock Exchange and a secondary listing on the Irish Stock Exchange. In light of the approach received from ENOC, the corporate restructuring has been put on hold.
Investigation
On 26 February 2009, Dragon Oil announced that the Group had identified via its Internal Audit Department possible irregularities within the Marketing Department and Contracts Department and, subsequently, had engaged KPMG (Dubai) to conduct an investigation. On 24 March 2009, the Company updated the market on the progress with the investigation and confirmed that there was no material impact on the Group's financial position. The investigation has progressed substantially but remains ongoing. The Company will update the market as and when required. The Group now has a strong and diligent management team who are working in line with the highest ethical standards.
CURRENT OPERATIONS AND OUTLOOK
The Rig 40 and the Iran Khazar rig are scheduled to complete two wells, Dzheitune (Lam) 13/135 and Dzheitune (Lam) 28/136, which are expected to come on stream by the end of July 2009.
In 2009, Rig 40 is scheduled to complete three wells on Dzheitune (Lam) 13 platform and the Iran Khazar rig is scheduled to complete four wells; that includes the two wells already completed in May 2009.
We are currently re-tendering for another platform-based drilling rig and expect to be able to award a contract in Q3 2009. We anticipate that the new rig will complete one well by the end of 2009.
Dzheitune (Lam) B platform is being installed and will be ready for drilling later this year.
We reiterate our drilling programme target of eight wells for 2009 and are on track to grow annual production by up to 15% on average over the years 2009-11.
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For further information please contact:
Media enquiries
Citigate Dewe Rogerson (+44 20 7638 9571)
Martin Jackson
George Cazenove
Investor and analyst enquiries
Dragon Oil plc
For investor queries: Leanne Denman, Investor Relations Officer (+971 4 305 3660)
For analyst queries: Anna Gavrilova, Communications Officer (+44 20 7647 7804)
Joint brokers and financial advisers
Davy Corporate Finance (+353 1 679 6363)
Hugh McCutcheon
John Frain
Merrill Lynch International (+44 20 7628 1000)
Andrew Osborne
Craig Kennedy
About Dragon Oil
Dragon Oil plc is an innovative international oil and gas development and production company, quoted on the London and Irish Stock exchanges (Ticker symbol: DGO). Its principal producing asset is in the Cheleken Contract Area, in the eastern section of the Caspian Sea, offshore Turkmenistan. The Company acquired interests in Blocks 35, 49 and R2 (10%) in the Republic of Yemen in December 2007.
Dragon Oil (Turkmenistan) Ltd., a wholly owned subsidiary of Dragon Oil plc, holds 100% interest in and is the operator of the Production Sharing Agreement for the Cheleken Contract Area. The operational focus is on the re-development of two oil producing fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov).
www.dragonoil.com
Disclaimer
The directors of Dragon Oil accept responsibility for the information contained in this announcement. To the best of the knowledge and belief of the directors (who have taken all reasonable care to ensure such is the case) the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.
Davy Corporate Finance, which is regulated in Ireland by the Financial Regulator, is acting for the Company and no-one else in relation to the Approach and will not be responsible to anyone other than the Company for providing advice in relation to the Approach.
Merrill Lynch International, which is regulated in the UK by the FSA, is acting for the Company and no-one else in relation to the Approach and will not be responsible to anyone other than the Company for providing advice in relation to the Approach.
Any person who is a holder of one per cent. or more of any class of shares in Dragon Oil plc may be required to make disclosures pursuant to Rule 8.3 of the Irish Takeover Panel Act, 1997, Takeover Rules 2007 and 2008.
This news release may contain forward-looking statements concerning the financial condition and results of operations of Dragon Oil. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. Dragon Oil does not undertake any obligation to update publicly or revise any forward-looking statement as a result of new information, future events or other information.
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